Lender scraps IO repayments for owner-occupiers on fixed rates

Effective for applications received from today, a non-major lender will no longer offer owner-occupier fixed rate loans with interest-only repayments.

ING DIRECT has announced that any customers wishing to access owner-occupied fixed rates will need to request principal and interest (P&I) repayments.

As from today, ING DIRECT will also be reducing owner-occupied rates on three and five-year fixed rate loans (combined with Orange Advantage) to 3.79 per cent per annum (p.a.) and 4.19 per cent p.a, respectively (4.48 p.a. and 4.51 p.a. comparison).

Standard owner-occupied three and five-year fixed rates will also be reduced to 3.89 p.a. and 4.29 p.a., respectively (4.51 p.a. and 4.56 p.a. comparison).

However, ING announced that it would be increasing its three-year investment fixed rate to 4.39 per cent (4.82 p.a. comparison).

As well as announcing the changes that are effective from today, ING DIRECT also said that its rates for all owner-occupiers making interest-only repayments will increase by 0.15 per cent from 23 June 2017.

The changes are the latest announced by a lender to curb interest-only loans in a bid to remain under the APRA speed limit.

For example, Teachers Mutual Bank announced last week that it was making changes to its lending policy for loans with interest-only (IO) repayments across both fixed and variable rate products, applicable to both owner-occupiers and investors.

The changes, which take effect across all brands, including UniBank and Firefighters Mutual Bank, limit borrowers to paying IO on just 50 per cent of their borrowings, while the P&I proportion of their loan must cover at least half of their borrowings.

Notably, the bank emphasised that this means a borrower would need to take out two loans to cover their mortgage.

“Where the applicant has total borrowings of $300,000, the minimum P&I component is $150,000. Hence the applicant would have two loans, a minimum of $150,000 on P&I and maximum of $150,000 on IO,” it said.